A Taxing Proposition

Will California’s voters soak themselves?

Kate Havard

October 29, 2012, Vol. 18, No. 07

‘California is a wonderful state mismanaged by lunatics,” declares Steven Greenhut, vice president of journalism for the Franklin Center for Government and Public Integrity. Anyone who examines California’s economy ought to agree.

Unemployment is stuck above 10 percent, and 3.8 percent of the population is on welfare, the highest rate in the nation. Four cities have recently declared bankruptcy. Citizens are fleeing the state—roughly 225,000 every year.

“If California is going to be saved, it’s not going to be at the state level,” Greenhut says. “It’ll be at the local level. Cities are going bankrupt, and running out of money focuses the mind.”

If that’s the case, Governor Jerry Brown’s mind should be razor-sharp. When he took office last year, Brown estimated the state to be $28 billion in debt. Last month, the State Budget Crisis Task Force discovered he was way off: California’s debt is closer to $170 billion and could be as high as $335 billion.

Rather than enacting real, structural reforms that might keep California from imploding, the state’s Democrats are out stumping for Proposition 30, a “temporary” tax increase. Brown calls it a “millionaires’ tax,” but it would affect anyone making over $250,000 per year. It would also increase the sales tax for all.

Californians have rejected the last eight tax increases on the ballot. What makes the governor think this one will pass?

Brown has chained Prop 30 to the future of California’s schools. He wrote this year’s “balanced budget” as if Prop 30 had already passed, which means that if it doesn’t, $6 billion in what he calls “draconian” budget cuts will automatically go into effect. Speaking at San Diego City College, Brown promised that if Prop 30 failed, “real suffering” would result.

Support for Prop 30 has started to sink, however, despite Brown’s tough talk and backing from the powerful teachers’ union. Two other ballot initiatives that would raise taxes (Props 38 and 39) aren’t doing well, either, while an initiative aimed at curbing union power (Prop 32) is doing better than expected.

Polling on the propositions shows the contests, at best, too close for anything other than cautious optimism. But in a state that’s set to reelect President Obama by 20 points, you take what you can get.

And “Jerry Brown’s tax increase,” as Prop 30 is known, has some powerful pushers. In response to Brown’s threats, California State Universities are holding back their acceptance letters until after the election. In September, the Los Angeles Times published a draft of an email prepared for applicants to California State University, Monterey Bay. “Because enrollment capacity is tied to the amount of available state funding, the campuses will be able to admit more applicants if Proposition 30 passes and fewer applicants if the proposition fails,” it said. The email contained a link to a “Yes on 30” website.

If Proposition 30 fails, schools will face cuts; but only because Brown engineered it that way. If it passes, much of the revenue will flow into the general fund instead.

If both propositions increasing personal income taxes pass (Prop 39 targets businesses), the one with more votes will become law. Despite calls for her to withdraw—including a personal plea from Brown—Munger’s not backing down. Proposition 38 is a $120 billion tax increase. But it does take meticulous steps to ensure that revenues raised to fund education would actually be spent on education. Prop 38 revenues cannot go toward increasing teachers’ salaries.

Brown’s allies say that the only effect of Proposition 38 will be to drain support from Proposition 30, ensuring no tax increase passes. Prop 38 is likely to lose: Over half of registered voters oppose it, and just 34 percent are in favor, according to a recent USC Dornsife/Los Angeles Times poll. The first ads in the wealthy Munger’s multimillion-dollar blitz against Prop 30 began airing last week, and Brown’s tax increase has already seen its support slip.

In March, USC Dornsife/L.A. Times found that 64 percent of voters favored Proposition 30, with 33 percent opposed. In September, the same poll showed that support for Proposition 30 had dropped by 10 points: 54 percent of voters approve, and 37 percent are opposed. When voters were read two statements, for and against Proposition 30, backing for the bill dropped again: 48 percent approved, 43 percent were opposed. The “against” statement read: “Sacramento politicians need to cut wasteful spending before raising our taxes.”

That’s a sentiment the governor might want to ponder. Brown is fond of showing how serious he is about fiscal responsibility. He flies Southwest Airlines and eats leftover tuna sandwiches for lunch. But he’s less frugal where it counts.

In May, while promoting Proposition 30, Brown’s office released a list of 70 state parks it planned to close because the state could no longer afford them. In July, the Sacramento Bee discovered that the Department of Parks and Recreation was hiding $54 million in operating funds.

Perhaps more egregious: Jerry Brown asked the legislature in July for $6 billion to launch his high-speed rail boondoggle, which will cost at least $68 billion to complete—already more costly than the $40 billion plan voters agreed to in 2008.

“What kind of governor would threaten cutting 14 days from the school year if his tax increases don’t pass, and then do this?” asks Katy Grimes, a reporter for CalWatchdog.org. A governor who favors big labor, that’s who. The light rail is a “union labor jobs bill,” Grimes says, a “dream” for unions, but a “nightmare” for taxpayers.

If Proposition 30 passes, Brown will have a $6 billion a year excuse to leave the state’s unsustainable public-sector pension plans untouched. “Brown put the unions in power 30 years ago as governor, and this is the result,” Grimes says. “This is why passing Proposition 32 is so important. It’s an actual reform.”

Prop 32, the Paycheck Protection Act, would ban automatic deduction of union dues for political purposes. It would also bar corporations and unions from donating to local and state candidates. The impact on California politics would be enormous.

Endorsing the proposition, the Orange County Register wrote:

Anyone familiar with California politics knows that the most powerful forces, by far, in the state Capitol are the public-employee unions. Their clout was demonstrated this year when the California Teachers Association, the most powerful of them all, killed Senate Bill 1530, which would have made it easier to fire bad teachers for actions “that involve certain sex offenses, controlled-substance offenses or child abuse offenses.” . . . The bill advanced after several cases of teacher abuse against children came to light. . . . The bill passed overwhelmingly in the state Senate. . . . Then the CTA killed it in the Assembly Education Committee.

Labor unions have spent $45 million on a “No on 32” campaign. According to Field Poll, Proposition 32 is struggling. Voters oppose it 44-38 percent.

It’s too close, and too early, to call Prop 30 or Prop 32. Californians might choose to start making needed cuts and curb the power of labor unions. If they don’t, the State Budget Crisis Task Force will need a more unnerving name.

As Laer Pearce, author of Crazifornia, warns, “We have hit bottom already, but not the bottom of the bottom.”